Re: Accufit Investments Inc
09 Nov 2015
Receivers had been appointed of the assets of Basab (B), the holding company of Accufit (A). The receivers appointed themselves as directors of A and acting in that capacity, sold A’s only asset, a substantial shareholding in KHL, a Chinese manufacturing and trading company. KHL was listed on the Hong Kong Stock Exchange but trading in its shares had been suspended. The receivers/directors did not obtain any valuation of the shares, nor did they take any steps to market the shares. B contended that the sale was at an undervalue and sought leave to bring a derivative action in the name of Accufit against the receivers/directors.
The receivers/directors applied to be joined as parties to the application so that they could submit evidence. The judge dismissed that application on the ground that joinder was unnecessary.
B adduced expert evidence in the form of written reports from forensic accountants and a financial adviser. The judge dismissed the application, holding that the requirement in s184(C)(2)(c) of the Business Companies Act that the court, when determining whether to grant leave, must take into account, inter alia, “whether the proceedings are likely to succeed”, meant that the applicant must show that there was a high likelihood that the proceedings would succeed and that it should be obvious on a cursory examination that the proceedings were likely to succeed. He also observed that the court should not undertake any detailed examination of the evidence and the merits where the case was not an obvious one.
Appeal 1: The Court of Appeal dismissed the appeal of the receivers/directors against the order dismissing their application to be joined as parties, holding that such joinder was unnecessary and would simply increase the costs. The directors had control of Accufit, which was itself a party to the application and was able to submit evidence.
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Appeal 2: The Court of Appeal clarified the law of the BVI s it applies to an application for leave to bring a derivative action. Agreeing with Counsel for the Applicant that the judge’s interpretation of the law would make the BVI one of the most restrictive jurisdictions in the common law world as regards derivative actions, the court reversed the judge on the test to be applied. The court held that, on the true interpretation of s184(C)(2)(c), the applicant was required to demonstrate only that it was more probable than not that the proceedings would be successful. The court also held that it was incumbent on the judge hearing the application to conduct as detailed an enquiry into the evidence as was necessary to enable the court to determine whether, on the evidence before it, it was more probable than not that the proceedings would be successful. The Court of Appeal undertook an evaluation of the evidence and, in the event, held that it did not satisfy the lower threshold.
View judgment here